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The reversal of the applicable 7.5% import duty on solar modules can reduce the quoted solar tariffs by 10-12 paisa/unit to INR2.60-2.62/unit in upcoming auctions, at least for strong counterparties such as NTPC Limited (IND AAA/Stable) and Solar Energy Corporation of India, estimates India Ratings and Research (Ind-Ra). Ind-Ra sees this as a favourable development for solar developers and could be a shot in the arm for the 8-10GW of solar power plants likely to be commissioned in FY19.

The recent round of auctions conducted by NTPC for 750MW of solar power have seen winning tariffs in the range of INR2.72-2.73/unit, around 11.5% higher than the lowest tariff of INR2.44/unit discovered in Bhadla solar park auction conducted in May 2017 by Solar Energy Corporation of India. Incidentally, Gujarat cancelled about 500MW of solar auctions in April 2018 anticipating higher tariffs.

The increase in tariffs was because of the import duty and the proposed 70% safeguard duty on imported solar modules (please refer market wire on Safeguard Duty on Solar Panels to Increase Equity Requirement; Impacts Ongoing Projects); the latter was later withdrawn. Besides this, the ban on letter of comfort/letter of undertakings by the Reserve Bank of India has reduced the arbitrage in the cost of debt (between short-term trade instruments and rupee term loan) which solar power developers used to enjoy during the project implementation stage. However, the industry will closely monitor safeguard duty applicability to quote tariffs.

The 7.5% import duty was levied by customs department on classifying solar modules ‘electric motors and generators’. This would delay project execution, as module containers were stuck at major ports